The 2009 Medicare Inpatient Prospective Payment System regulation, released on July 31, 2008, and to appear in the Federal Register on August 19, 2008, made significant final changes to the Stark Act exceptions from previously recommended changes. The changes were recommended either in the calendar year 2008 Physician Fee Schedule or the Fiscal Year 2009 Inpatient Prospective Payment System proposed rule. The changes are generally described below. Except where noted, these changes become final on October 1, 2008.

1. "Stand in the Shoes." CMS is not finalizing the entity "stand in the shoes" proposal. With respect to the physician "stand in the shoes" provisions, CMS is finalizing the application of the provision to apply only to physicians who have an ownership or investment interest in a physician organization. If a physician has a compensation arrangement, but not an ownership or investment interest, such physician will not be required to "stand in the shoes" of his/her physician organization. However, non-owner physicians are permitted to apply the "stand in the-shoes" provisions. Further, physicians will not be required to "stand in the shoes" of their physician organization if the arrangement satisfies all of the requirements of the academic medical center exception.

2. Period of Disallowance. The period of disallowance ends no later than 1) where the noncompliance is unrelated to compensation, the date that the financial relationship satisfies all the requirements of an applicable exception; 2) where the noncompliance is due to the payment of excess compensation, the date when the excess compensation is returned and the financial relationship satisfies all the requirements of an applicable exception; or 3) where noncompliance is due to the payment of compensation that is of an amount that is insufficient to satisfy the requirements of an applicable exception, the date when the additional compensation is paid. CMS emphasized that it was establishing the outer limits of when the period of disallowance begins and ends, but the parties could argue that different dates apply.

3. Alternative Method for Compliance—Signature. If a financial arrangement meets all requirements of an applicable exception, except for a signature on a written agreement, the arrangement will qualify for an exception as long as the new limited signature requirements are met. If the failure to obtain the signature was inadvertent, the entity must obtain the signature within 90 days after the commencement of the financial relationship. If the failure to obtain the signature was not inadvertent, the entity must obtain the signature within 30 days after the commencement of the financial relationship. Despite CMS's other proposals regarding failure to meet "form" requirements of an applicable exception, CMS is choosing not to extend any other alternative method for compliance except for the failure obtain the signature of a party on or before the commencement of the financial relationship. An entity can use the signature exception only once every three years with respect to the same referring physician. This is a significant recognition by CMS of the complexity in managing Stark compliance and providing necessary services, especially when emergency services are needed.

4. Percentage-Based Compensation. Percentage-based compensation may only be used to pay physicians for their personally performed services and must be based on the revenues directly resulting from the physician's services. CMS is modifying the following exceptions, making it clear that the compensation cannot be based on a percentage arrangement: rental of office space, rental of equipment, fair market value compensation, and indirect compensation. This prohibition, however, does not prohibit percentagebased compensation to non-professional services such as management or billing services. Percentage arrangements can exist in the new gain sharing arrangement exception. This prohibition will become final on October 1, 2009.

5. Per-Click Arrangements. Effective October 1, 2009, per-click leasing arrangements cannot apply to services referred by the lessor. By way of example, if a physician leases equipment to a hospital, the hospital could not pay the referring physician on a per-click basis for the service performed on the patient using the leased equipment. However, other types of leasing arrangements could apply, including block and hourly leasing arrangements. This restriction could also apply where a hospital leases equipment to an independent physician and one of the hospital's employed physicians refers a patient to the independent physician and the equipment is used with such patient by the independent physician.

6. Definition of DHS Entity. CMS is amending the definition of "entity" to include, in addition to the entity that billed for the DHS service, the person or entity that "performed" the DHS. This change, which will be effective on October 1, 2009, may require many "under arrangements" to be either eliminated or restructured. Although several commenters question what "performs" DHS means, CMS stated that it shall have its common meaning without providing further definition. Because DHS is comprised of various components, CMS stated that it does not consider entities to be performing DHS services if such entities lease or sell space or equipment, furnish supplies that are not separately billable, or provide management or billing services or personnel to the entity performing the DHS services. Thus, as long as a component of the DHS service is not provided by an entity, such entity may not be a DHS entity. Each of these components will still need to comply with an applicable exception.

7. OB Malpractice Subsidies.The OB malpractice subsidy exception is being extended to permit hospitals, federally qualified health centers, and rural health clinics to provide obstetrical malpractice insurance subsidies to physicians who regularly engage in obstetrical practice that is 1) located in a primary care HPSA, rural area, or area with a demonstrated need, as determined by the Secretary in an advisory opinion; or 2) comprised of patients at least 75 percent of whom reside in a medically underserved area or are part of a medically underserved population.

8. Ownership or Investment Interest in Retirement Plans. Physicians will not be deemed to have an ownership or investment interest in their employer if such interest is owned through a retirement plan offered by the employer. If the retirement plan has ownership interests in other entities to which the physician refers, the physician is deemed to have an ownership or investment interest in such other entities.

9. Burden of Proof. CMS is adopting its proposal that the burden of proof is on the DHS entity.